Overview
Information exchange has always been a tricky area within which to undertake a competitive assessment. It is very fact-specific and whether or not exchanges fall foul of the competition rules may depend on a range of different factors, including: whether the parties are actual or potential competitors; the purpose of the exchanges; the context in which the exchanges take place; the type of data being exchanged; the age of the data; whether it is useful for current and future strategic decision-making; whether it is publicly available.
Information exchanges can occur in various forms, including bilateral or multilateral exchanges. These exchanges can be direct or indirect, involving a third party like a service provider. Exchanges can also be one-way and can occur between parties operating at different levels of the supply chain (vertical), as well as between parties who may have a supplier-customer relationship at one level but are competitors at another level. Exchanges can take place in the context of possible merger transactions, trade associations, mandatory or recommended regulatory filings (such as mandatory data sharing in the context of the REACH regulation).
Importantly, the nature of information has changed dramatically over the last decade (certainly since the last EU guidelines on horizontal cooperation were published). In the past, it used to be an instrument of cooperation, sometimes a measure of policing performance, price signaling or of collaboration. Now, information or data is digital and is often the product itself. Data may be raw, or processed, or manipulated.
In this Alert, we will look at some of the key guidance points outlined in the new EU Horizontal Guidelines and offer some practical tips for undertakings facing choices around participating in information exchange activities. But first, we offer some quick thoughts on information exchanges in the context of proposed merger transactions and information exchanges between competitors which are encouraged by public bodies as part of required regulatory filings (where parties continue to be required to comply with the competition rules). Under Article101(1) of the Treaty on the Functioning of the European Union (TFEU), any agreement, arrangement or concerted practice which has the object or effect or preventing, restricting or distorting competition, is void. In the context of merger negotiations or regulatory collaborations, it is unlawful to share confidential information which reveals, for example, market strategy, production capacities, pricing structure, technical information which could be useful for product development. One way to solve these challenges is to establish, in a merger context, a clean team between the parties which can receive confidential data and undertake due diligence without such information being shared with the other party. In the context of regulatory cooperation, it is very common to appoint an independent third-party service provider to act as an information trustee to collect data from contributing parties under non-disclosure agreements. They will collate, verify and aggregate the data into a composite data set which can be shared with the contributors, but which cannot be disaggregated and allocated to any individual contributor.
Information exchanges may take place in the context of particular types of collaboration, which benefit from safe harbor block exemptions. In such cases, it is necessary to look first to those block exemptions to see if the information which is being exchanged is directly related to the implementation of the agreement covered by the block exemption. There are block exemptions covering, among others, vertical agreements (the VBER), R&D and specialization agreements. If it is objectively necessary to the implementation of such cooperation agreement, then it will likely not infringe Article101(1). Where the information exchange is the main object of the cooperation, then the guidance provide in the new horizontal guidelines will apply.
The new Guidelines identify two main competition law concerns arising from information exchanges:
- Facilitation of collusive outcomes, through artificially increased transparency between rivals. This can arise, for example, where confidential, commercially sensitive information is disclosed, which may allow price signaling, or the adaptation of market conduct which enables the emergence of a common understanding;
- Facilitation of market foreclosure, through the exchange of information which is strategically important to enable participants to gain market knowledge to compete on the market. It may, for example, afford parties which are vertically integrated the ability to exchange information upstream thereby gaining market power and the ability to collude to raise the price of a key input for a market downstream.
The new Guidelines give examples of the types and characteristics of information whose sharing may be problematic. As a general rule of thumb, information exchanged which is commercially sensitive and likely to influence the commercial strategy and decision-making of a competitor, is likely to engage Article101(1) and need careful evaluation. The exchanging parties do not need to receive any benefit from the exchange. The most obvious example of this would be the exchange of pricing information, including prices of inputs into pricing decisions, raw materials, components, capacity, production – which may not have a direct effect on prices paid by end users. Other categories of potentially sensitive information include: market shares, customers, market entry or exit plans. A key question to ask is: does the information exchange reduce strategic uncertainty in the market?
Many of the issues which arise around information exchanges, come up with trade associations, which can potentially be liable under competition rules. Trade associations serve important functions in promoting their members' interests. But they must be alive to the risk of being used as a means to foster or perpetuate an infringement of competition law. Here are some key Do's and Don'ts, in the context of information sharing:
DO
✓ Ensure that the association has a competition compliance policy and that members are aware of it and are familiar with it
✓ Prohibit members from discussing competitively sensitive information
✓ Require members to leave and to report any meetings with rivals where competitively sensitive information is discussed
DON'T
χ Allow the association to be a conduit for the sharing of confidential information (e.g. about pricing, customers or outputs) either directly or indirectly through the medium of the association
χ Allow members to discuss competitively sensitive information at or around association events, including social events
χ Issue pricing or output recommendations to members
χ Require members to provide the association with competitively sensitive information
χ Create association rules which prevent members from taking independent commercial decisions: the essence of business is to act independently of rivals
Questions that are often asked are:
- Is it OK to share aggregated data? Trade associations are often involved in conducting member surveys, gathering data from members to be used as part of lobbying efforts on legislative initiatives, or in response to regulatory inquiries, or regulator fact-gathering exercises. Third party information trustees are sometimes engaged to carry out these tasks. Data gathered in this way should be aggregated and complied in such a way that members cannot disaggregate the data and thereby gain access to other members' confidential commercial information. Where parties participate in a reciprocal data-sharing arrangement, such as a data pool, they should in principle have access only to their own data and the final aggregated information of the other participants.
- If the data is more than a year old, is it then sufficiently historic so as to be safe to share with competitors? The answer will depend on the particular features of the market. The key here is whether the information being shared is still relevant to current and future strategic business decisions. What is the average length of the pricing cycle or the average length of the contracts in the industry? If contracts are only published every several years and the bidding cycle begins soon after the award of the current contract, then it is quite likely that cost or input pricing data relevant to the previous contract may be relevant to the current bidding cycle.
- Is it OK to receive data from a rival, when we have not shared any of our own data? An undertaking will be assumed to have used information communicated to it by a rival, even if it is unilateral. If it is commercially sensitive, then it may infringe Article 101(1). It can happen in a number of ways (such as email, chat rooms, meetings, phone calls, or input into algorithmic tools) and it is irrelevant whether or not it is reciprocal. The key question is what is the impact on the competitive situation in the market. If such disclosure happens, the recipient must take active steps to distance itself publicly from the disclosure. This could be by communicating its opposition to the disclosing party, or the competition authorities, or the leadership of the trade association if that was the forum for the original disclosure. It can refuse to participate further in the association.
- Does it matter that information exchanges take place very infrequently? A single communication of price sensitive information can infringe Article101(1). The issue is whether the exchanges facilitate greater transparency in the market and support a collusive outcome between the competitors. In an unstable market, more frequent exchanges may be necessary to establish a collusive outcome. The new Guidelines note the growing importance of real-time data for business decision-making, suggests that the highest competitive advantage is obtained by automated real time information exchange.
Concluding Remarks
Whether or not an information exchange will be likely to result in foreclosure or collusion will depend on the characteristics of the market – which may themselves be affected by the information exchange. The sorts of characteristics which will be relevant, include the level of transparency which already exists in the market, the number of participants in the market, the extent of barriers to entry to the market, whether the conditions of supply are stable and the characteristics of the products or services themselves. Certain conduct may be assumed to engage Article101(1), such as the direct or indirect exchange of pricing data, especially where the objective is to increase transparency amongst rivals, measure future behavior or to police conduct amongst competitors.
Information exchanges can be complex and must be measured on a case-by-case basis and, where Article101(1) may be engaged, detailed assessment must be carried out to assess whether the exemption conditions set out in Article101(3) are met.
